How to Deal with a Fund Manager's Exit

26 August 2022
5 min read

What would you do if you had recently invested in a fund and learned the following morning that the fund manager was leaving the fund? Is it a big deal or not? Would it affect the performance of your fund in any way?

However, there has undoubtedly been some of your meticulously concluded inquiry and research at concern here. In every industry, changing jobs for career advancement is a prevalent and gratifying decision. The Mutual Fund sector is typical. Fund managers of a fund management company can either move on or get promoted.

Should you leave the fund if the fund manager changes? Let's investigate it in this blog.

How to Deal with a Fund Managers Exit & Shockproof Your Investment

Making a content quality check when manufacturing a product is similar to asset management judging.

Here are some general guidelines that you should keep in mind as you monitor your portfolio following the exit of a Mutual Fund Manager.

  • Verify Whether The Fund Manager's Departure Was Due To Advancement Or A Switch

The primary step would be determining if the fund manager has changed fund houses or received a promotion within the same company. If it involves a promotion, you shouldn't worry too much.

However, your fund manager might very well keep an eye on the funds he was formally in charge of and ensure their compatible accomplishment within the same company.

If a switch occurs, you will need to look for a handful of things to determine whether to resume with the fund or not.

  • Do Not Hastily Rush Out Of The Mutual Fund

Have you invested in a Mutual Fund depending on the proven record and reputation of the fund manager? Watching your fund manager exit in such a scenario may cause you to doubt your investment.

Some of you might be thinking about withdrawing from the fund. The ability of the fund manager to carry out important decisions at the appropriate time is typically more crucial for actively managed funds.

However, simply because a prominent fund manager has exited does not warrant panic. Typically, there are procedures in place that don't change throughout the fund's existence, so the fundamental idea stays the same. The switch to a new fund manager should go flawlessly if the financial institution has reliable procedures and capable supporting staff.

However, some fund houses are run only on the bases of a single person managing them and are likely to alter their strategies whenever the head of the organization changes. This is unquestionably a warning sign, and the investor needs to conduct additional research.

  • Modification Of The Investment Strategy

Investment strategy determines how the fund will develop. You must consider other options if the financial strategy does not fit your investment targets and goals.

You must think about additional funds if the investment philosophy of your funds, which were previously in alignment, changes due to the fund manager's departure. The turnover ratio is the most suitable indicator for this parameter. The turnover ratio shows an essential change if there is a substantial shift.

  • Examine The Portfolio P/E And Beta Of The Fund Following The Hiring Of A New Fund Manager

An increase in the portfolio P/E may indicate that the scheme is shifting its emphasis from value to growth.

Beta is the portfolio's propensity to move with the market, and a change from low to high beta is another sign of higher market correlation and, consequently, higher risk.

  • Keep A Close Eye On The Fund

Don't ignore the situation and let things develop naturally. Examine the situation more closely if you invest in schemes where the fund manager has left. This entails keeping an eye on the fund's performance or other factors until and even after the newly assigned fund manager takes over.

Maintain a watchful eye out for any noticeable changes in your investing approach, as indicated by the kinds of securities you buy and the activity level. If the new fund manager begins excessively and frequently churning the current portfolio to revamp the fund, proceed with caution. The fund's performance may be impacted by increased purchasing and selling, which is a red flag.

Investors need to look for variations from the fund's defined mission by the new fund manager. Monitor the portfolio for the scheme, which is typically announced at the end of each month or quarter.

Verify to see if the fund manager is placing excessive emphasis on specific securities of a particular industry. It might increase the scheme's accomplishment risk.

  • Performance Of The Fund Under The New Fund Manager’s Supervision

Investors shouldn't be frightened or dismayed if performance slightly declines following a change in leadership. The fund manager should be given some time to understand the current portfolio.

By boosting the fund portfolio's value, the predecessor might be capable of eventually providing better performance and efficiency. You could likely hold off on making any more investments in the fund until you better understand how the exit will affect your mutual fund.

You may, however, need to cut the cord and leave the fund before things get worse if you notice a noticeable decline in performance for an extended period.

  • Watch Out For A Rise In The Portfolio-turnover Ratio Of The Scheme Under The New Fund Manager

A sharp rise in the monthly factsheet following a fund manager change suggests that the new manager is substituting a sizable portion of the portfolio, which could affect returns or risk characteristics.

You may also want to read Role of a Fund Manager in Mutual Funds

Conclusion

In the end, a fund manager carries out an investment strategy and oversees portfolio trading activities. So, while a change in fund management will undoubtedly impact the fund's performance, it is not always a bad thing.

Perform a background check on the new fund manager before deciding to leave the fund and only then draw a conclusive decision.

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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